FIRAN TECHNOLOGY GROUP CORPORATION
Notes to the Interim Consolidated Financial Statements
(Unaudited) (in thousands of dollars except per share amounts)
1.
BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles on a basis consistent with those
followed in the November 30, 2006 audited consolidated financial statements of Firan Technology
Group Corporation and are presented in Canadian dollars. These unaudited interim consolidated
financial statements do not include all the information and note disclosures required by Canadian
generally accepted accounting principles for annual financial statements and therefore should be read
in conjunction with the said November 30, 2006 audited consolidated financial statements and the
notes below.
In the opinion of management, the unaudited interim consolidated financial statements include all
adjustments (consisting of normal recurring accruals) considered necessary by management to present
a fair statement of the results of operations, financial position and cash flows. The unaudited interim
consolidated financial statements were prepared using the same accounting policies and methods as
those used in the Corporation’s audited financial statements for the year ended November 30, 2006,
except as explained in Note 2.
The unaudited interim consolidated financial statements include the accounts of Firan Technology
Group Corporation (the “Corporation”) and its 100% owned subsidiaries, FTG Circuits Inc. (“FTG
Circuits – Chatsworth”) and Firan Technology Group (USA) Corporation.
2.
CHANGES IN ACCOUNTING POLICY
Effective December 1, 2006, the Corporation adopted CICA Handbook Section 1530, Comprehensive
Income, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement and
CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive
requirements for the recognition and measurement of financial instruments, as well as standards on
when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new
component of equity referred to as other comprehensive income.
In accordance with the provisions of these new standards, the Corporation reflected the following
adjustments as of December 1, 2006:

A presentational reclassification of amounts previously recorded in “Cumulative translation
adjustment” to “Accumulated other comprehensive income.”
The adoption of these standards had no impact on the Corporation’s interim consolidated statement of
earnings. The unrealized gains and losses included in “Accumulated other comprehensive income”
were recorded net of taxes, which were nil.
FIRAN TECHNOLOGY GROUP CORPORATION
Notes to the Interim Consolidated Financial Statements
(Unaudited) (in thousands of dollars except per share amounts)
The Company’s financial assets and liabilities are recorded and measured as follows:
Asset / Liability
Category
Measurement
Cash
Accounts receivable
Due from related party
Accounts payable and
accrued liabilities
Long-term debt
Held-for-trading
Loans and receivables
Loans and receivables
Fair value
Amortized cost
Amortized cost
Other liabilities
Other liabilities
Amortized cost
Amortized cost
Other balance sheet accounts, such as inventories, prepaid expenses, current and future income taxes,
other assets, goodwill, machinery and equipment are not within the scope of the new accounting
standards as they are not financial instruments.
Embedded derivatives are required to be separated and measured at fair values if certain criteria are
met. Embedded derivates include elements of contracts whose cash flows move independently from
the host contract. Management reviewed contracts and determined that the Company does not
currently have any embedded derivatives in these contracts that require separate accounting and
disclosure.
3.
SHARE CAPITAL
(a) Stock based compensation to employees
The Corporation recognized stock based compensation expense in the interim consolidated
statement of earnings of $20 for the third quarter of 2007 and $109 for the year to date period. Of
the year to date amount, approximately $17 relates to the following current year grants.
Grant Date
January 23, 2007
April 3, 2007
July 11, 2007
# of Options
Granted
Expiry
Date
150,000 January 23, 2013 $
10,000
April 3, 2013 $
30,000
July 11, 2013 $
Option
Price of
Grant
1.35
1.65
1.73
Fair Value
of Options
Granted
Vesting
Period
3 years
3 years
3 years
$
$
$
69
7
20
The total stock based compensation was expensed in the current period and credited to contributed
surplus. The fair value of options granted were estimated at the date of the grant using the BlackScholes valuation model with the following assumptions: risk-free rate of 6%; expected life of 3
years; volatility of 55% and a dividend yield of nil.
FIRAN TECHNOLOGY GROUP CORPORATION
Notes to the Interim Consolidated Financial Statements
(Unaudited) (in thousands of dollars except per share amounts)
(b) Earnings per share
The Corporation has 1,775,000 voting convertible preferred shares outstanding. While the
convertible preferred shares have the same voting rights as common shares they are not considered
in calculating basic earnings per share but are included in calculating diluted earnings per share
and will receive no dividends. The first, second and third quarter of 2006 and 2007 weighted
average number of shares used in calculating basic and diluted earnings per share were 17,800,227
and 19,575,227 respectively.
4.
INCOME TAXES
The Corporation accounts for income taxes under the liability method. Under the liability method, a
future tax asset would be recorded only to the extent that based on available evidence, it is more likely
than not that a future tax asset would be realized. The valuation allowance is reviewed and adjusted for
each reporting period. Should management estimates of taxable income change in future periods, it
may be necessary to adjust the valuation allowance, which could affect the results of operations in the
period such a determination was made.
Recorded in the August 31, 2007 year to date cost of sales is $814 relating to non-refundable, federal
government Scientific Research & Experimental Development (“SR&ED”) tax credits used to reduce future
taxable income. Similarly, there were $84 of refundable, provincial government SR&ED tax credits
recorded in the third quarter and $219 of refundable provincial government SR&ED tax credits recorded on
a year to date basis. There were no federal or provincial SR&ED tax credits recorded in the first, second or
third quarters of 2006.
The income tax for the third quarter of 2007 consists of a Canadian operations future tax recovery of $87 at
a 34.0% income tax rate and a U.S. subsidiary current tax recovery of $11 at a 45.4% income tax rate. This
compares to a $6 U.S. subsidiary current tax at a 45.4% income tax rate for the third quarter of 2006.
On a year to date basis for 2007, the income tax consists of a Canadian operations future tax of $274 at a
34.0% income tax rate and a U.S. subsidiary current tax of $91 at a 45.4% income tax rate. This compares
to a $59 U.S. subsidiary tax recovery at a 45.4% income tax rate for the same period on 2006.
5.
LONG TERM DEBT & CAPITAL LEASES
At August 31, 2007 the Corporation has drawn U.S. $2,000 of the available U.S. $2,500 capital
expenditure facility. The capital expenditure loans are amortized over 60 months with monthly
principal payments beginning August 1, 2007 in the amounts of U.S. $33 plus interest charged at
8.25% which represents U.S. prime plus applicable margin for the U.S. subsidiary and 7.86% which
represents a 90 day LIBOR rate plus applicable margin for the Canadian borrower.
FIRAN TECHNOLOGY GROUP CORPORATION
Notes to the Interim Consolidated Financial Statements
(Unaudited) (in thousands of dollars except per share amounts)
6.
TRANSLATION OF FOREIGN CURRENCIES
FTG Circuits – Chatsworth and Firan Technology Group (USA) Corporation are considered selfsustaining subsidiaries. Accordingly, their assets and liabilities are translated at exchange rates in
effect at the balance sheet date. Revenues and expenses are translated at average exchange rates
prevailing during each month. The resulting translation adjustments are included in the accumulated
other comprehensive income section of shareholders’ equity until there is a realized reduction in the
net investment.
At the end of the third quarter of 2007, the goodwill relating to the self sustaining operations was
reduced by $484 as a result of the impact of the strengthening Canadian dollar. The offset was included
in the accumulated other comprehensive income.
7.
FOREIGN CURRENCY RISK
As at August 31, 2007, the Corporation has oustanding U.S. dollar forward sales contracts maturing in
the fourth quarter of 2007 of U.S. $2,000 at rates between $1.04 and $1.0698. The unrealized loss on
the contracts was less than $1 and was recorded in the interim consolidated statement of earnings as a
increase in selling, general and administrative costs and on the balance sheet as an increase in accounts
payable and accrued liabilities.
8.
OPERATING LEASES
During the second quarter of 2007, the Corporation signed a new 10 year facility lease for the
FTG Aerospace Canadian operations. Monthly lease rent payments are $16 for the first 5
years and $17 for the second five years. Provided that the Corporation is in good standing, the
landlord will grant a new lease for 2 further terms of 5 years subject to the same covenants and
conditions as the original lease.
FIRAN TECHNOLOGY GROUP CORPORATION
Notes to the Interim Consolidated Financial Statements
(Unaudited) (in thousands of dollars except per share amounts)
9.
SEGMENTED INFORMATION
The Corporation operates in two operating segments, FTG Circuits and FTG Aerospace. FTG Circuits
is a leading manufacturer of high technology/high reliability printed circuit boards within the North
American marketplace. FTG Aerospace is a manufacturer of illuminated cockpit panels, keyboards,
bezels and sub assemblies for original equipment manufacturers of avionic products and airframe
manufacturers. FTG Circuits and FTG Aerospace financial information is shown below:
Three Months Ended
August 31, 2007
Circuits
Sales
$
Amortization of machinery and equipment
(Loss) earnings before interest and taxes
Interest expense on long-term debt
10,877
Aerospace
$
September 1, 2006
Total
Circuits
3,018
$ 13,895
2,653
$ 13,670
40
724
764
17
781
(393)
266
(127)
167
268
435
153
129
-
129
-
-
11,017
$
Total
684
153
$
Aerospace
Income taxes (recovery)
(188)
90
(98)
6
Net (loss) earnings
(358)
176
(182)
32
268
300
6,590
34,646
Segment assets
29,970
Goodwill
7,748
4,065
Additions to machinery and equipment
839
Nine Months Ended
28,056
4,065
4,549
317
1,156
385
August 31, 2007
Circuits
Sales
37,718
-
33,705
$
-
4,549
16
401
September 1, 2006
Total
Circuits
$
34,236
Aerospace
$
Total
9,364
$ 43,069
7,561
$ 41,797
2,082
129
2,211
2,219
123
2,342
Earnings before interest and taxes
609
824
1,433
651
524
1,175
Interest expense on long-term debt
426
-
426
348
-
Amortization of machinery and equipment
$
Aerospace
6
348
Income taxes (recovery)
85
280
365
(59)
-
(59)
Net earnings
98
544
642
362
524
886
29,970
4,065
2,331
7,748
646
37,718
4,065
2,977
28,056
4,549
1,647
6,590
47
34,646
4,549
1,694
Segment assets
Goodwill
Additions to machinery and equipment
FIRAN TECHNOLOGY GROUP CORPORATION
Notes to the Interim Consolidated Financial Statements
(Unaudited) (in thousands of dollars except per share amounts)
9.
SEGMENTED INFORMATION (continued)
Geographic location
Three Months Ended
August 31, 2007
September 1, 2006
United
Canada
Sales (by location of customer)
$
Goodwill (by location of division)
2,174
States
$
United
Total
11,721
$ 13,895
1,039
3,026
4,065
5,961
1,647
7,608
Canada
$
1,982
States
$
Total
11,688
$ 13,670
1,039
3,510
4,549
5,883
651
6,534
Machinery and equipment (by
location of division)
Geographic location
Nine Months Ended
August 31, 2007
September 1, 2006
United
Canada
Sales (by location of customer)
10.
$
6,687
States
$
United
Total
36,382
$ 43,069
Canada
$
5,438
States
$
Total
36,359
$ 41,797
Goodwill (by location of division)
1,039
3,026
4,065
1,039
3,510
4,549
Machinery and equipment (by
of division)
5,961
1,647
7,608
5,883
651
6,534
RELATED PARTY TRANSACTIONS
During the third quarter, the Corporation was repaid the $154 due from Glendale International Corp.
(significant shareholder).
11.
COMPARATIVE FIGURES
Certain of the comparative figures in the interim consolidated statements of cash flows have been
reclassified to conform with the current periods presentation.